Great Lakes Dredge & Dock Corporation
Aug 8, 2013

Great Lakes Reports Second Quarter Results

Company receives full award for Dredge New York Allision

Backlog above $550 Million

Company Records a Noncash Impairment of Goodwill in the Demolition Segment

OAK BROOK, Ill.--(BUSINESS WIRE)-- Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD), the largest provider of dredging services in the United States and a major provider of commercial and industrial demolition and remediation services, today reported financial results for the three and six months ended June 30, 2013.

Commentary

Jonathan Berger, Chief Executive Officer stated, "For the three months ended June 30, 2013, Great Lakes reported Revenue of $152.9 million, a Net Loss of $25.2 million and Adjusted EBITDA of $11.0 million. Included in the Net Loss is a $21.5 million noncash charge for goodwill impairment related to the demolition segment.

"Our dredging segment won $346 million or 62% of the domestic bid market through the first six months of 2013. This win rate, driven by the award of the first phase of the PortMiami project and capturing 63% of the coastal protection market, sets the stage for a busy second half of this year and into 2014. Our Terra Contracting and Rivers & lakes teams have commenced working together on a project in the Midwest valued at approximately $30 million. We also began execution on two of the larger projects in our demolition segment backlog, with one scheduled for completion in 2013 and the other continuing into next year.

"We are making structural changes within the organization to bring more operational skills into executive leadership. We continue to focus on our NASDI subsidiary in our demolition segment. We are also upgrading our project management capabilities. We have dedicated significant resources at corporate and in the field to improve execution and internal controls and we have made strides since the beginning of the year. We are also evaluating opportunities to combine operations to reduce support costs, and focusing on improving margins through more selective bidding and better project execution.

"As noted, we recorded a noncash goodwill impairment of $21.5 million in the second quarter for our demolition segment. We are committed to validating our strategy for this business by year end."

William Steckel, Chief Financial Officer stated, "After six months of near record revenue levels, dredging activity slowed in the second quarter as several vessels were offline for scheduled maintenance and some projects expected to contribute were delayed into the second half of the year. Gross margin was lower due to lower fixed cost coverage. As we look forward, dredging has nearly $460 million in backlog and another $143 million in low bids and options pending award. We currently expect an increase in activity in the dredging segment for the remainder of 2013.

"Our second quarter results included $13.3 million for the proceeds resulting from the settlement of our dredge New York loss of use claim. We were pleased to receive payment on this judgment more than five years after our dredge New York was struck by a cargo vessel in Port Newark, New Jersey. Quarter results also included an estimated noncash charge of $21.5 million, which represented all the goodwill associated with our NASDI and Yankee demolition subsidiaries. We typically test goodwill for impairment in the third quarter, however, due to a decline in the overall financial performance and declining cash flows in the demolition reporting unit, we concluded there was a triggering event that required us to accelerate the test to the second quarter. We wrote down the value of goodwill related to this reporting unit by $21.5 million, reflecting our best estimate of impairment at this time. We are currently completing our detailed valuation of the demolition segment assets and liabilities, and will finalize the impairment measurement in the third quarter.

"Additionally, we determined that certain pending change orders for one demolition project no longer qualify for revenue recognition according to the Company's accounting policy. In June we filed a lawsuit against the project's general contractor to preserve our contractual rights while we pursue payment for the work performed under these change orders. As a result of the new developments related to the project, which also include recent communications with the general contractor and site owner, we reversed revenue of $5.6 million that was previously recognized for the project. We continue our efforts to achieve a favorable outcome related to these change orders."

Second Quarter 2013 Highlights

Total Company

Dredging

Demolition

Six Months Ended June 30, 2013 Highlights

Total Company

Dredging

Demolition

Outlook

Mr. Berger concluded, "Due to the project nature of our business, quarterly results can sometimes vary significantly, as we saw this quarter. With dredging backlog, including pending awards, at a record high, we expect high utilization for the remainder of the year and into 2014. In addition, we are currently in final negotiations for a project in the Middle East valued at over $100 million.

"The domestic dredging bid market was very busy in the first six months of 2013. As noted, we won 62% of the market in the first six months, primarily for capital and coastal protection projects. We previously announced we won the PortMiami project in May. The base work of $122 million is included in backlog and another $80 million of options are expected to be awarded by January 2014. Dredging is expected to begin in the fourth quarter of this year. The Company won 63% of the coastal protection projects bid this year. This includes $75 million of projects needed due to Superstorm Sandy, and we added a $19 million coastal protection project in the Northeast in July. As a result of the high win rate, dredging backlog was $458 million, a nearly 18% increase since year end. The Company was low bidder on an $81 million coastal restoration project this week that will contribute to 2014 results. Three more Sandy-related projects are expected to be bid in the next month. In addition, later in the year we expect to bid more coastal protection work in the Southeast. Beyond 2013, there are plans to use Sandy supplemental funding for more long term coastal protection projects. Our TerraSea Joint Venture was awarded its first contaminated sediment remediation dredging project on the Passaic River in New Jersey and commenced operations last week.

"The demolition segment will require additional time and expense to improve operations and deliver better results. We see numerous demolition and environmental remediation opportunities on the horizon, and we will be measured in our approach and selectively target those projects we believe that we can execute well."

The Company will be holding a conference call at 9:00 a.m. C.D.T today where we will further discuss these results. Information on this conference call can be found below.

Conference Call Information

The Company will conduct a quarterly conference call, which will be held on Thursday, August 8, 2013 at 9:00 a.m. C.D.T (10:00 a.m. E.D.T.). The call in number is 877-377-7553 and conference ID is 20061209. The conference call will be available by replay until August 12, 2013, by calling 800-585-8367 and providing passcode 20061209. The live call and replay can also be heard on the Company's website, www.gldd.com, under Events & Presentations on the investor relations page. Information related to the conference call will also be available on the investor relations page of the Company's website.

Use of Adjusted EBITDA

Adjusted EBITDA, as provided herein, represents net income attributable to Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income taxes, depreciation and amortization expense, debt extinguishment, accelerated maintenance expense for new international deployments and goodwill impairment. In 2012, the Company modified the Adjusted EBITDA calculation for accelerated maintenance expense for new international deployments that are not directly recoverable under the related dredging contract and are therefore expensed as incurred. The Company does not frequently incur significant accelerated maintenance as a part of its international deployments. As such, the exclusion of these accelerated maintenance expenses from the calculation of Adjusted EBITDA allows users of the financial statements to more easily compare our year-to-year results. Adjusted EBITDA is not a measure derived in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company presents Adjusted EBITDA as an additional measure by which to evaluate the Company's operating trends. The Company believes that Adjusted EBITDA is a measure frequently used to evaluate performance of companies with substantial leverage and that the Company's primary stakeholders (i.e., its stockholders, bondholders and banks) use Adjusted EBITDA to evaluate the Company's period to period performance. Additionally, management believes that Adjusted EBITDA provides a transparent measure of the Company's recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, the Company uses a measure based upon Adjusted EBITDA to assess performance for purposes of determining compensation under the Company's incentive plan. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company's use of Adjusted EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of accelerated maintenance expense for new international deployments, goodwill impairment, interest and income tax expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company's business. For these reasons, the Company uses operating income to measure the Company's operating performance and uses Adjusted EBITDA only as a supplement. Adjusted EBITDA is reconciled to net income attributable to Great Lakes Dredge & Dock Corporation in the table of financial results. For further explanation, please refer to the Company's SEC filings.

The Company

Great Lakes Dredge & Dock Corporation is the largest provider of dredging services in the United States and the only U.S. dredging company with significant international operations. The Company is also one of the largest U.S. providers of commercial and industrial demolition and remediation services primarily in the Northeast and Midwest. The Company owns a 50% interest in a marine sand mining operation in New Jersey that supplies sand and aggregate for road and building construction and a 50% interest in an environmental service operation with the ability to remediate soil and dredged sediment treatment. Great Lakes employs over 150 degreed engineers, most specializing in civil and mechanical engineering, which contributes to its 123-year history of never failing to complete a marine project. Great Lakes has a disciplined training program for engineers that ensures experienced-based performance as they advance through Company operations. Great Lakes also owns and operates the largest and most diverse fleet in the U.S. industry, comprised of over 200 specialized vessels.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking" statements as defined in Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission (the "SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Great Lakes and its subsidiaries, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "would," "could," "should," "seeks," or "scheduled to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Great Lakes cautions investors that any forward-looking statements made by Great Lakes are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Great Lakes, include, but are not limited to, risks and uncertainties that are described in Item 1A. "Risk Factors" of Great Lakes' Annual Report on Form 10-K for the year ended December 31, 2012, and in other securities filings by Great Lakes with the SEC.

Although Great Lakes believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Great Lakes' future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Great Lakes does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

             
 
Great Lakes Dredge & Dock Corporation
Condensed Consolidated Statements of Operations
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Contract revenues $ 152,863 $ 163,107 $ 341,710 $ 318,014
Gross profit 5,181 18,706 30,964 38,728
General and administrative expenses 18,311 11,456 37,498 24,723
Proceeds from loss of use claim (13,272 ) - (13,272 ) -
Impairment of goodwill 21,474 - 21,474 -
(Gain) loss on sale of assets—net   58     (93 )   60     (124 )
Operating income (loss) (21,390 ) 7,343 (14,796 ) 14,129
Other income (expense)
Interest expense—net (5,396 ) (5,383 ) (11,129 ) (10,642 )
Equity in loss of joint ventures (385 ) (8 ) (975 ) (24 )
Loss on foreign currency transactions—net   (261 )   (21 )   (225 )   (15 )
Income (loss) before income taxes (27,432 ) 1,931 (27,125 ) 3,448
Income tax (provision) benefit   2,244     (751 )   2,348     (1,315 )
Net income (loss) (25,188 ) 1,180 (24,777 ) 2,133
Net (income) loss attributable to noncontrolling interests   (53 )   91     (31 )   206  
Net income (loss) attributable to Great Lakes Dredge & Dock Corporation $ (25,241 ) $ 1,271   $ (24,808 ) $ 2,339  
Basic earnings (loss) per share attributable to Great Lakes Dredge & Dock Corporation $ (0.42 ) $ 0.02 $ (0.42 ) $ 0.04
Basic weighted average shares 59,436 59,171 59,403 59,105
Diluted earnings (loss) per share attributable to Great Lakes Dredge & Dock Corporation $ (0.42 ) $ 0.02 $ (0.42 ) $ 0.04
Diluted weighted average shares 59,436 59,534 59,403 59,493
 

             
 
Great Lakes Dredge & Dock Corporation
Reconciliation of Net Income (Loss) attributable to Great Lakes Dredge & Dock Corporation to Adjusted EBITDA
(Unaudited and in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
Net income (loss) attributable to Great Lakes Dredge & Dock Corporation $ (25,241 ) $ 1,271 $ (24,808 ) $ 2,339
Adjusted for:
Accelerated maintenance expenses - 1,276 - 1,276
Impairment of goodwill 21,474 - 21,474 -
Interest expense—net 5,396 5,383 11,129 10,642
Income tax provision (benefit) (2,244 ) 751 (2,348 ) 1,315
Depreciation and amortization   11,660     8,359   23,735     16,123
Adjusted EBITDA $ 11,045   $ 17,040 $ 29,182   $ 31,695
 
               
Great Lakes Dredge & Dock Corporation
Selected Balance Sheet Information
(Unaudited and in thousands)
 
Period Ended
June 30, December 31,
2013 2012
Cash and cash equivalents $ 21,623 $ 24,440
Total current assets 324,186 313,690
Total assets 817,354 826,395
Total short-term debt 2,515 13,098
Total current liabilities 147,471 185,950
Long-term debt 291,000 250,000
Total equity 249,800 273,425

                 
 
Great Lakes Dredge & Dock Corporation
Revenue and Backlog Data
(Unaudited and in thousands)
 
Three Months Ended Six Months Ended
June 30, June 30,
Revenues 2013 2012 2013 2012
Dredging:
Capital - U.S. $ 39,474 $ 45,184 $ 84,982 $ 72,091
Capital - foreign 33,348 20,848 71,733 38,873
Coastal protection 52,227 40,458 109,148 71,641
Maintenance 6,639 20,068 34,403 60,613
Rivers & lakes   4,799     8,757     10,180     15,770  
Total dredging revenues 136,487 135,315 310,446 258,988
Demolition 16,645 27,929 31,533 60,475
Intersegment revenue   (269 )   (137 )   (269 )   (1,449 )
Total revenues $ 152,863   $ 163,107   $ 341,710   $ 318,014  
 
 
 
As of
June 30, December 31, June 30,
Backlog 2013 2012 2012
Dredging:
Capital - U.S. $ 185,351 $ 43,177 $ 104,283
Capital - foreign 163,577 218,953 225,999
Coastal protection 66,398 80,245 34,111
Maintenance 20,950 22,406 10,907
Rivers & lakes   21,975     24,510     23,167  
Total dredging backlog 458,251 389,291 398,467
Demolition   92,908     60,148   *   56,786  
Total backlog $ 551,159   $ 449,439   $ 455,253  
 

* December 31, 2012 demolition backlog includes backlog acquired by the Company on December 31, 2012 in connection with the Terra acquisition.

Great Lakes Dredge & Dock Corporation
Katie Hayes, Investor Relations
630-574-3012

Source: Great Lakes Dredge & Dock Corporation

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